Hon BILL ENGLISH (National—Clutha-Southland) Link to this
This part sets the tax rates for the 2005-06 year. Dr Cullen will no doubt be reflecting deeply through the debate on this part, because in it is the very small piece of policy that almost cost him the Government. But for the student loan bribe—as he explained to the vice-chancellors the other day—he probably would have lost the election. I do not think there is much doubt about that.
The problem for the Committee is that it needs the opportunity to consider other points of view about the tax rates for this tax year. I would like the Minister in the chair, Dr Michael Cullen, to give us a considered opinion on what the Council of Trade Unions had to say about what tax rates he should be setting. In its post-election briefing to the incoming Minister, the Council of Trade Unions stated: “We have been concerned that many workers now believe that the fiscal surplus is larger than it needs to be, and this has given impetus to the case for tax cuts.” Well, I am sure it has. I would be keen for the Minister to tell us how he will respond to the Council of Trade Unions, which, to be fair, has not put the case aggressively in its briefing, but does, I think, represent the views of many workers fairly. Every time workers see the fiscal surplus reported, they think the Government has too much money, and every time they look at their monthly overdraft, they think they have too little money. Of course, Dr Cullen will explain that the fiscal surplus is not really the fiscal surplus. That is one of his interesting little games for now, but I can assure him that it amounts to a fiscal dead end to try to shift the goalposts right over to the side of the paddock instead of leaving them where everyone knows they have always been.
So I would be interested in what Dr Cullen’s reaction is to that information from the Council of Trade Unions. When Treasury said something similar, he christened its considerations as an ideological burp. Well, I would ask what this one is. Is it an ideological reflux or an ideological cough? Is it a malapropism—something the Council of Trade Unions should not have actually said but did? The Council of Trade Unions then went on to be more specific. It did not lay out a particular set of tax scales that its members would be interested in, but it did focus on Dr Cullen’s own proposal, which was that the tax brackets be inflation-adjusted. It said that the first inflation adjustment of tax brackets should be moved forward from 2008 to 2006.
I have gone back and looked at the fiscal situation when Dr Cullen proposed that inflation adjustment, and I found that the surplus being projected then was much smaller—significantly smaller—than the surplus being projected now. If Dr Cullen is denying that, I would be happy to hear from him on it. In my view, and in the view of the National Party, there absolutely is room on the books for him to bring forward the adjustment, as the Council of Trade Unions believes he should. I do not think it is saying that for ideological reasons; I think it is saying it for political reasons. The reason is that when its workers look at where interest rates are going, they know they will be significantly worse off under a re-elected Labour Government. Workers, having voted Labour in, have figured out in the last couple of weeks that because Labour policies are pushing up interest rates, they will end up being worse off. Many of those who have benefited from campaigns like the “5 in 05” campaign run by the New Zealand Amalgamated Engineering, Printing and Manufacturing Union will be no better off. They are starting to signal that to their elders and betters in the union movement, who have been brave enough to put a specific proposal to Dr Cullen in their post-election briefing.
If Dr Cullen expects this Committee to support Part 1, then he should give members an explanation as to why he cannot bring forward that inflation adjustment. He needs to explain that move to the Council of Trade Unions, to the Committee, and to United Future.
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I think one of the problems Mr English always gets himself into is that he cannot read documents properly. Of course, the Council of Trade Unions did not say that the surplus is too large.
Hon Dr MICHAEL CULLEN Link to this
Ah, he said the workers think it is—precisely! The Council of Trade Unions is not arguing—[ Interruption] But the member was inferring from that statement that, therefore, there was room for tax cuts. Mr English said that because people wrongly believe the surplus is too large, we should therefore respond to their wrong belief and have a tax cut.
Hon Dr MICHAEL CULLEN Link to this
That is right—that is Mr English’s economic policy. That is why Mr Key has replaced him as the Opposition spokesperson on finance. What Treasury said, what the Reserve Bank said, and what the OECD said was not what National thinks they said. They all said that the surplus should be kept at its current level and that there should not be any further fiscal easing. Mr English’s problem—and for all that Southland country bumpkin thing, he is actually a first-class honours English graduate from the University of Otago—is that he knows these things. He knows that, in fact, giving a tax cut is the same as having an increase in spending in terms of fiscal easing. It goes the same way. It both lowers the operating surplus and therefore increases and stimulates demand and therefore inflationary pressures.
That is why if the National Party wants to give $2 billion of tax cuts from 1 April next year, and it swallows its pride and reads the Treasury papers properly, it will find out that Treasury says, first, its policy was all wrong—it was the wrong tax cuts—and, second, that to pay for them, it has to cut spending by that amount. What Treasury actually said was that if we scrimp and save and take about $300 million off the growth in spending each year—and it cannot come up with any significant ways of doing it, other than all the usual things such as to increase the age for superannuation, and better target support for childcare, that is, more income testing, etc.—then we will have little tax cuts year by year by year. But it has never argued that we can afford large tax cuts absent a large decrease in spending. That is the Treasury position; that is the OECD position. Indeed, if we take Treasury at its face value and it cost $300 million a year, we could afford $900 million, which is less than half of the first round of what National is proposing for 2006.
Mr English, before the election, was admitting privately up and down the country that the policy did not make sense. He was going to go quiet on it and hope National did not win, because then he could become the leader after the election and reverse that silly policy. We know that Mr English, on that front bench, was the only one who actually understood that the policy did not make sense, and that was why he dissociated himself from that policy in any number of private meetings up and down the country before the election. I got plenty of reports back about that.
So all this part does is confirm the current tax rates. The challenge for members opposite is very simple: if they want to lower tax rates, tell us where the corresponding spending cuts will come from. What will get hatcheted? Mr Borrows wants more police. Mr Williamson wants more money for roads. Mr Finlayson probably wants more judges, or at least more money to be paid to judges. He certainly wants more QCs, that is for sure, and that ups their fees when we have to pay for them to represent the Crown. I have yet to hear from a single Opposition spokesperson who does not want more money spent in his or her area, both geographically and in policy terms—and that member is the worst.
Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this
I suspect that history will not treat this Minister of Finance well. This former history lecturer argues that one of the reasons Government spending is clearly not burgeoning out of control is that the Government is running a big surplus. He argues continuously that, quite clearly, Government spending is not burgeoning out of control, because we have got a big surplus, so that cannot be. Then, on the other hand, he argues that, in fact, the Government does not have a big surplus. That is what he has been arguing just now. I say to the Minister that he actually needs to get his mind focused a little better around some of these economic issues. He has a capable mind and he should focus it a little better.
As we debate Part 1, the question is whether we should now be confirming the current tax rates. I would like the Minister to answer a couple of questions. When he became Treasurer and Minister of Finance and raised the top tax rate to 39c, which is reconfirmed today, what percentage of taxpayers did he say would be affected by that and what percentage of taxpayers will pay that top tax rate next year, once we confirm these tax rates for next year? I remember when the Government raised those tax rates back in early 2000. The Minister said that not many New Zealanders would be affected by this, it would be only a very small percentage of New Zealand taxpayers. I do not know how many New Zealand taxpayers will be paying that top tax rate next year, once we confirm them. The second question is whether it is correct that last year OECD data indicated that ordinary New Zealand workers—I think the OECD calls them production workers—faced the biggest increase in tax payments, or the second biggest in the entire OECD. Is it possible that one of the reasons is that the average New Zealand production worker, as the OECD calls them, was at that $38,000 threshold of annual income from where they go on to a higher tax rate? If that is the case, why will this Minister not listen even to the Council of Trade Unions? Almost every economist, other than the most left wing, argues there should be some tax easing. Even the Council of Trade Unions argues that there should be some tax easing. Why does the Minister not bring forward, as the Council of Trade Unions argues, the inflation adjustments for those thresholds? Unless there is an inflation adjustment, clearly increasing numbers of New Zealanders will be paying higher taxes.
This is where I come back to my first point. How can the Government argue that its spending is prudent, when it is collecting hugely increasing levels of taxation because of fiscal drag, when there are huge increases in the number of New Zealanders paying higher tax rates, when the Government is raking in massive increases in revenue, and this Minister is presiding over a 40 percent increase in Government spending, just since he has been Minister? This is the problem we have. We are confirming these tax rates, locking in the massive increase in tax revenue that this Minister has been dragging in, and, consequently, the Minister claims that the big fiscal surpluses as a result mean that he is not allowing Government spending to burgeon out of control. Treasury says that Government spending is out of control. The Reserve Bank has made it very clear that Government spending is a serious problem, as it seeks to control inflation.
The Minister does not seem to understand that the difference between Government spending and tax cuts is significant. Both, obviously, put inflationary pressure in the system, but the difference is that all Government spending puts inflationary pressure into the system. Tax cuts mean that some money is saved. Some people save money, and history shows us that. If Treasury is questioned on this matter, if the Reserve Bank is questioned on this matter—as they were at the select committee the other day—they would confirm that tax cuts are less inflationary than Government spending, because some tax cuts are saved by certain taxpayers.
Dr the Hon LOCKWOOD SMITH Link to this
Indeed, they are. Some tax cuts are saved; all Government spending is spent. If we are concerned about interest rates and the future of this economy, we should not be confirming these tax rates.
Hon CLAYTON COSGROVE (Associate Minister of Finance) Link to this
I want to respond briefly to that traditional vein-popping speech made by Dr Lockwood Smith. He talked about the Treasurer’s place in history, as we address the setting of the tax rates. Well, I just remind Dr Smith that he was one of the three who auditioned for the National Party spokespersonship on finance, but did not make it, then lost the foreign affairs spokesmanship, and then Tim Groser came along and stole the ball gown from him and took trade.
I say to him that these tax rates today set the platform for our policies, which this Government won an election on. I note that Dr Smith did not answer the challenge that Dr Cullen put to him—where would the cuts have been made by a National Government? How many schools would it have closed and how many nurses would it have disposed of? During the election campaign members opposite went around the country saying that Labour had taken on all these policy wonks and consultants, and that they would be gutting the public service, yet they knew deep down—and, as Dr Cullen pointed out, Bill English knew this—that the vast majority of public servants under this Government are front line, such as police and nurses, and others in jobs that help the country’s infrastructure. So where would National have made the cuts? If it was not going to make cuts, then is it today surrendering and backing off on its spending promises?
Dr Smith talked about prudent fiscal management, when it was Dr Smith’s party that went into an election promising to spend billions of dollars, and based in large part, on borrowing. Even the National candidate in my electorate would not admit it, when confronted by John Key’s own words, poll-driven and said all around the country, that it was based on borrowing. No one in the National Party would admit it. So I ask the House and the people of New Zealand to reflect on the legacy of fiscal management and the integrity around Dr Smith’s statements.
These tax rates build on Labour’s commitments, and this Government, unlike that mob opposite, has a habit of keeping its promises and has a habit of delivering to the people when it fronts up to an election, and beyond. So I ask people to judge. When we are talking about a place in history, I will be proud to stand up as an Associate Minister of Finance, alongside Dr Cullen, and say that we delivered on what we said we would do, and that we were fiscally prudent. I said about two Budgets ago, when Bill English attacked the Labour Party—I am a little bit of a scholar of history—for being too tight, I never thought in my wildest dreams I would hear Bill English, a National Party front-bench spokesperson, or anyone from the National Party, attack a Labour Government for being too fiscally tight. Traditionally National tries to say that Labour blows the lot.
Hon CLAYTON COSGROVE Link to this
I invite the member to have a look at his own party’s manifesto. I invite him to get to his feet again and tell us what he would cut out of his manifesto, the manifesto that he took to the people of Waimakariri and others right around the country, and said: “This is what we will do. This is how much we will spend on defence, on prisons, on education.”, although they were a bit short on education. When people asked what National’s education policy was the candidate would stand and say: “We are for high standards.”, and sit down. The candidate in my electorate used to do that regularly. She used to say: “We are for excellence in education.”, and then sit down. She would never tell us where the dollars were coming from. In the last election National told us how much it would spend on defence, prisons, and education, but then said it would gut the public service, which in code meant gut teachers. National cannot have it both ways. It cannot say it wants excellence in education, cut taxes—
Hon CLAYTON COSGROVE Link to this
—and nurses, and then say it would borrow a heap of dough to pay for its election promises, and then like some sort of road to Damascus experience say that the National Party that Dr Smith represents is somehow fiscally prudent. Give me a break!
The problem with that arrogant crew opposite is that they think people are silly, they think communities cannot see through them or add up. I recall one time when I was on the radio with National’s deputy leader and he made the inappropriate comment that New Zealanders do not understand Budgets, or how the economy works, or a set of Government books. I said to Mr Brownlee that Kiwis who can balance their own wage book, their own housekeeping money, and buy their groceries understand how the economy works. What an arrogant statement from the deputy leader. When we went around the country during the election campaign we knew that people understood that if we spend the lot and if we cut taxes and have less revenue, we would have to cut Government services. That crew opposite could not con the people of New Zealand.
JUDITH COLLINS (National—Clevedon) Link to this
The member who has just resumed his seat would never let the truth get in the way of a good rant, and that is what we have just had. One of the things that he said is that people should be able to keep their own money. That is what he said in his great ranting. He said that if people are clever enough to balance their own cheque books and their budgets, they are clever enough to understand these economic issues. Well, yes they are, and I wish he would speak very carefully to the Minister in the chair, the Hon Dr Cullen, because—
We hear the member for Otaki, the man with the smallest majority in Parliament. Poor Mr Hughes!
Mr Cosgrove should talk to the Minister of Finance about how clever people are and that they can balance their own budgets, and should be able to keep their own money. That is what the National Party believes in.
I know it might be different in Dr Cullen’s situation, but a lot of New Zealanders have a huge amount of debt. Many people spend more than they earn, and one of the problems is that they are borrowing and borrowing. It is all very well for the Reserve Bank to say that it will put up the interest rates. In fact, there have been nine increases in the last 2 years. [Interruption] If the member opposite would like to repeat that statement outside the House, I would be very happy to sue him, and I suggest he do exactly that.
No, no. Some people actually have standards, and I know that member does not.
In terms of this hardship that New Zealanders are facing, at the moment they are facing very high interest rates, which this Government does not care about but encourages. It is all very well to say that that will stop them from borrowing more money. It does not help them with the debt they currently have. People were feeling quite good before, because their interest rates were a bit lower, but the values of their properties were going up. That was being driven by immigration. What we have at the moment are people who are very much hurting from the interest rate increases, and they are hurting from the credit cards they have spent up on. I know it is something that the Prime Minister might not know about, but most people are finding there are sales everywhere in the shops—they are not post-Christmas sales—because shopkeepers are starting to find it very hard. There is not enough cash to keep the economy going; there is not enough interest there.
Dr Cullen’s excuse is that he will hold all the money for us and he will dish it out occasionally for little pet projects. He thinks he is the only one who is clever enough to use the money, except it is not his money; it is the people’s money. Why can people not keep their own money? He says that National would cut all these services. There is a massive surplus that keeps on growing, as he keeps on overtaxing people. What he should be thinking is that he should not be taking so much money from the pockets of hard-working New Zealanders and that maybe he should not be saying to people, who are struggling on one income with a couple of kids to look after: “I, Michael Cullen, know best and I’ll dole out something to my favourite pet projects. And if you want your childcare, I’ll say you can have 20 hours free childcare in a kindergarten.” The only trouble is the kindergarten teachers go on strike all the time because they do not trust this Government, either. That is what they did.
Of course, what the Government does not want is for people to make their own choices about where their children go to school, or whether they have childcare. The Government wants none of that. Of course, we know why. This Government does not trust people. It tells everyone to be frightened, and that although they might be good at being in charge of their own money, they cannot trust themselves. Yet we have heard Mr Cosgrove today telling everyone how clever people are in their households. It is a shame that Mr Cullen cannot actually understand that people want their own money back. His reason for saying that is that he wants to dole it out.
So we will have householders who at the moment are having to pay very high interest rates on their home loans and credit card debts, and at the same time their teenage children will be getting absolutely interest-free money to spend pretty much as they want on anything they want. Now, how is it going to be for the 40-year-olds and the 50-year-olds who have children in that age group, who are trying to pay off their mortgages while their kids are living at home and getting interest-free money to have whatever tertiary education they want?
R DOUG WOOLERTON (NZ First) Link to this
I am not a student of history. I have not taught history. I do not even have a good mind for history, and everybody knows that. But I will tell the House one thing. I was in the National Party for a number of years, and it has gone to the pack since then.
I was sitting here listening to the speeches from the National Party members, and I was trying to think—students of history may be able to tell me—of the last time that National cut taxes. I was trying to think of how many National Governments in the past 50 years or whatever have cut taxes. I remember working as a party volunteer for many, many years, and I remember getting a really hard time many times—not just once but many times—when National put taxes up, but I cannot remember when it put them down.
New Zealand First is happy to support this tax amendment bill, because, like most other New Zealanders, we looked at tax cuts and that sort of thing, and we decided, and have it as a policy, that there should be tax cuts for exporters. We believe there should be incentives for people to export out of this country. The people who send our goods overseas should be encouraged and should have tax breaks so they can reinvest and be better able to do those things. But, no, no, National members were not talking about that. They were talking about tax cuts across the board. It has not worked for President Bush, I might tell members, but nevertheless National members think that that is the way to go.
The thing that we in New Zealand First could not get around and the thing that worried us most of all is the thing that has been spoken about by Labour Party members this afternoon, and that is the question of where the money was going to come from. We believe we know where the money was going to come from. It was going to come, very definitely, from cuts in Government services—there is no question about that—and it was going to come from an area that we thought even National had learnt a lesson in, and that is the business of asset sales. National was going to get back into the business of asset sales. They were going to get back into the business of selling off key assets in this country, probably to the same people or associates of the same people they sold assets to some time before. I will not go down the list. I will not talk about all those things that were supposed to have worked more efficiently and better and provide better services under the free-enterprise system, in the hands of private owners, because we all know the history of Air New Zealand, rail, and all those sorts of things.
Mr Clayton Cosgrove talked about borrowing for the tax cuts, which was mooted at the recent election, and National members say that that is not correct. But I can tell members, though, that they did not deny that very strenuously at the time.
He said they would borrow? Well, speaking of John Key, I can tell members that I was in this House last week when this bill was being debated—Mr Cosgrove will not believe this; he was not here, probably—and John Key gave a big speech about the bill but did not mention tax cuts. He did not even mention tax cuts. National’s finance spokesperson did not mention tax cuts. He was in the Chamber, ranting and raving, going on about everything under the sun, but he did not mention tax cuts, which is a key policy. In fact, I believe it is the only policy that was part of the National Party election campaign. The policy did not do it for them.
Well, it is an interesting team, over here. Mr English is coming up. Dr Cullen, with due respect to him, is a smart man, but he asked: “Why is Bill English saying these things?”. He knows. He is being cute. He knows that this is not about the tax bill. This is not about any of this. They were pre-election speeches. What election? We have just had one. It is a leadership election. That is what it is about, and that is why we have the team over here. I am going to watch very carefully.
KATHERINE RICH (National) Link to this
As I rise to speak on the Taxation (Annual Rates and Urgent Measures) Bill, I have to make a comment about the wonderful piece of nostalgia that that speech was. Mr Woolerton has given me the opportunity to have an appreciation of what the National Party must have been like 30 years ago when I was a child.
Kiwis doing their pre-Christmas light reading who cast an eye over this bill will be extremely disappointed. Those hard-working Kiwis who are looking for a bit extra in their pockets before Christmas will be very disappointed. Part 1 confirms the tax rates as they stand. It confirms that there will be no additional relief for those Kiwis who have worked all year and made a huge difference to this country. They have got up every morning and done the right thing—they have gone to work, paid their bills, and paid for extras for their kids—but there is nothing extra in this bill for them.
I want to talk about middle-income New Zealanders—who are somewhat amorphously called “middle New Zealand”. Those are the Kiwis who pay for everything. They pay for their medical bills. They pay a lot of education fees. They pay for everything. They do not get any handouts from Work and Income, they do not get any extras, and they are currently struggling to pay their bills. There is nothing in this bill for them. There is nothing for the hard-working electricians, plumbers, and gasfitters who have been coming to talk to our select committee week after week. [Interruption] “The Grinch Who Stole Waimakariri” is sitting over there. He should be wanting to play Santa to some of his hard-working constituents. There is nothing in this bill for those Kiwis—nothing at all.
I take issue once again with Mr Woolerton. I cannot believe that John Key would stand in this House, speak to this bill, and not mention tax cuts. That member has lived and breathed that policy for the last 6 months.
That policy, I think, shows a fundamental difference between the parties. National believes that New Zealanders deserve to keep more of their own money in their pockets. Labour believes that it is best to take that money out of their pockets, then to hand it back, and it expects those who do get something back to be gracious for that support. We believe that New Zealanders can make up their minds about how they spend their money. We trust them to spend their money in the ways they see fit, and we do not make any judgments about who deserves tax relief more than anybody else. One of the things we find with some of the tax plans put forward by Labour is that they are very selective indeed. There will be nothing for a person who happens to be a single worker without children. There will be nothing for a person who happens not to be a student with a student loan.
One of the things we will find, when the Government starts to dabble with the present tax system, is there will end up being distortions. Already we are seeing some students saying they will take out a greater loan because it is free—they are actually financially motivated to do so. Labour does not think that will happen, but there is not one single person who understands the way financial markets and financial incentives work who would say that students will not be encouraged to take out additional funding and invest it if they are able to do so.
We have seen some interesting comments about inflation. I wonder why Dr Cullen thinks that if New Zealanders spend their own money, it is inflationary, but if the Government cranks up the amount it spends, it is not inflationary. I would have thought that a dollar was a dollar, no matter how it was spent. So that is an interesting, selective view of economics.
One of the things National believes in is a move towards flattening the tax rates. It is not just National that is saying that; Treasury is also saying it. We need to simplify the tax system we currently have, yet every single idea put forward by Labour will just add a greater amount of complexity to the current tax rates, and will not introduce any greater amount of simplicity at all, and that will make administration costs a lot higher. I would like to hear Dr Cullen talk about what the cost will be of the implementation of the Working for Families package—a churning process that will take money from New Zealanders, only to hand it back, with the Government expecting them to be gracious for the donation.
CHRISTOPHER FINLAYSON (National) Link to this
The antiseptic language of Part 1 covers up and camouflages the fact that this is a foolish economic policy. But having heard the outstanding contribution made by my friend Ms Rich just a few seconds ago—
CHRISTOPHER FINLAYSON Link to this
—I have decided that rather than yell and scream like the boy wonder from Otaki, who is busily talking himself out of a seat—
CHRISTOPHER FINLAYSON Link to this
I did not even seek the electorate vote. What is the definition of a marginal seat? It is a safe seat held by Darren Hughes. If we give him a little more time, he will not even be here. So my advice to the member for Otaki is sit still, wait for a few minutes, and listen to my appeal to—I was going to say sweet reason, but in the case of the Minister of Finance it would be malignant reason.
The tax rates are a major reason why the economy is not as productive as it should be, why opportunities are constantly being lost to New Zealand, why 650 people per week move to Australia, and why New Zealand is slipping down the rank of OECD nations. Dr Cullen is a historian. I suggest that he reads—I may even buy him a copy—a very good Economist publication, . The first time I bought such a publication was in 1988. Then New Zealand, in terms of its standard of living, was ahead of Spain and Ireland, and was also miles ahead of Portugal. If we look at it today, obviously we see we are behind Ireland, very much behind Spain, and just marginally ahead of Portugal. One of the key reasons for that is New Zealand’s mediocre economic performance, and a major reason for that mediocrity is the tax rates.
Tax is too high in this country. The rates in schedule 1 are impeding growth, destroying self-reliance, and forcing people to go overseas to Australia, where the standard of living is 20 percent better than ours. The rates reflect the Government’s know-all approach to the governance of its citizens. It thinks it knows best, so it can take our money and spend it for us. It is not surprising that the Prime Minister’s favourite model for the way to organise a country is the Scandinavian approach of bloated bureaucracy and high tax rates.
But as Mr English said, the Government should not just take our money from us. The same litany is repeated by Business New Zealand, the Council of Trade Unions, and Treasury, the Minister’s own department. We are all singing the same song. Tax cuts are necessary to strengthen the economy, and to provide the incentives required to keep New Zealanders at home. We will shortly debate the student loan bribe introduced at the 11th hour by the Labour Party. The detail of that proposal can be debated then, but if we put money into tax cuts and divert it away from that suicidal scheme, that would be one obvious example that would answer the Minister’s question as to how we in the National Party would fund tax cuts.
What surprises me, and the member for Otaki should listen very carefully to this, is that even the Australian Labor Party favours tax cuts in the Australian economy. The only question is as to the size, the scope, and so on. [Interruption] Why can the New Zealand Labour Party—[] The member should be quiet. Why can the New Zealand Labour Party not listen to its labour cousins? The New Zealand Labour Party is stuck in the era of the first Labour Government, whereas the Australian Labor Party has moved on. Labour should get off its high horse, put aside its pathetic “soak the rich” attitude to life, listen to what the independent commentators are saying, and move towards tax cuts. I strongly advise the Minister that that is the correct approach, and that even at this late hour in his ministerial career he can revise upward what the historians will say about him in 15 years’ time. Rather than being seen as the man who presided over the locust economy, he could be seen as the man who, at the 11th hour, saw that his previous 6 years had been a foolhardy administration of the economy and decided he would do something about it.
It is not just the National Party that says that. The Māori Party says the same thing. United Future secretly agrees, which is why it is such a shame that it entered into that Faustian bargain with the Labour Party. ACT agrees, and I am sure that New Zealand First secretly agrees.
CRAIG FOSS (National—Tukituki) Link to this
I am opposed, and my party is opposed, to this bill. I want to concentrate on a few points—why the bill is being dealt with under urgency, the “wet”, the Working for Families package, student loans, and party votes—and I have only 5 minutes! I also want to note who are supporting this bill and why they are doing so.
Why does this bill require urgency? I ask why we are in urgency right now when more cash is being siphoned from hard-working businesses that are now taking an extra 7 days to pay their bills—45 days as opposed to 35½ days in the last quarter. There is a surplus that was charging towards $8 billion at last look. Why is the Government so keen to take a $2 billion hit on New Zealand’s balance sheet, my balance sheet, and my family’s balance sheet? The future of my country is about to take a hit of $2 billion because of the write-off of interest on student loans. This bill will be voted on under a party vote, but I suggest that all those members opposite intending to vote for it should examine their consciences. How on earth could New Zealand First members, United Future members, and, in particular, the Māori Party members vote for this bill? How can they play politics with the future of New Zealand by racing through this bill? The funds are not required right now.
I would like to touch on the “wet”—the wine equalisation tax—particularly as I represent the best wine-growing area in New Zealand. I want to express one point of caution with the wine equalisation tax—that is, New Zealand is starting to accommodate Australian tax law. Of course this is a good measure for the winegrowers of New Zealand—
The CHAIRPERSONIncome tax rates—OK, sure. Income tax rates need to be cut, and they should be cut. Treasury has more than enough money to allow for the cuts. We have a crisis coming in New Zealand. Our exchange rate is fluctuating and it is about to plummet. Interest rates are going up every day. The official rates have gone up nine times in the last year. Mr Bollard recently suggested that we should have room for tax cuts because New Zealanders are essentially rational investors. Mr Cosgrove recently accused the National Party of treating taxpayers as silly. I suggest to Mr Cosgrove that they are rational investors, because Mr Bollard is increasing interest rates to stop people from borrowing, to help slow down the economy, which has been pumped along by the public sector. As we have seen in the recent Reserve Bank policy announcement, public expenditure, public GDP growth, is about to stay constant at about 5.5 percent for the next few years. Private growth is plummeting to negative in 2007-08. We need room for tax cuts. Locking New Zealand in at rates of 33 percent and 39 percent, with the difference between the income rates for trusts and personal income tax, and, of course, for corporate tax, needs to be readdressed.
I again suggest that members examine their consciences. Can they look taxpayers in the eye and say that this is good legislation and this is a good bill? Can they seriously look them in the eye? They should stop playing politics with New Zealand’s future and take only as much as they need to run the country in the best and most proficient way, and let those who earn the funds in the first place look after their future and make their decisions. If they were brave enough and progressive enough to cut people’s taxes and leave extra money in their pockets, they might be surprised to find that people start paying off their mortgages.
If these rates are stuck in stone, and if this bill does go through, New Zealand will become the land that time forgot, because all the decent earners are whipping across to Australia. We have the dinosaurs: the “Cullenosaurus” taking taxes from all over the country, a front bench full of “MPosauruses”, and a party that promotes only “policyosauruses”—a party with a policy of tax structures, tax rates, and fiscal policies that are backward-looking, not forward-looking, and not investments in New Zealand’s future; they are only constant references to the past. If we do not restructure, and if we do not examine and do what is fair with these tax rates, New Zealand will be stuck, at the very best, right where it is right now, and many other countries will race right past us.
PAULA BENNETT (National) Link to this
As someone who is a new member of Parliament, I was initially astounded, then quite simply appalled, at the inside information on how democracy works for this Government. Forgive me my naivety, but, the way I understand it, the House is in urgency this week so that the Government can quickly push through legislation that affects all New Zealanders’ lives. It is pushing it through so quickly that there is no time for public submissions, so the public does not get to have a say in the direction that the country is heading. But I gather that that is the way that New Zealand works under a Labour - New Zealand First Government. It seems appalling that the Government works in that way. It is a busy time for everyone with Christmas looming, and the Government chooses to try to push through a very flawed piece of legislation that turns earners of the average wage into beneficiaries, and discriminates against all New Zealanders.
It is about equality for all New Zealanders. It is about putting more money into the pockets of more New Zealanders. What the Government does not seem to understand is that it is the people’s money. These people are working hard in their jobs and deserve to have across-the-board tax cuts, not this sort of flawed bill that gives something to minorities and individuals whom the Government deems to be worthy of its tax relief.
Well, let us define families a little bit. Under a Labour Government, families seem to be defined as those with dependent children, and the Working for Families bill most certainly does that. What New Zealanders deserve, though, is across-the-board tax cuts. Under a National Government, those earning between $38,000 and $50,000 would have got tax relief—down to 19 percent. Being taxed at 19 percent would have put more money back into the hands of everyone.
It is about self-determination. Let New Zealanders decide how they want to spend their money. The arrogance and the hypocrisy of the Government in taking that money from them to spend it in the way that it deems best is purely that—arrogance. What do people expect from a Government? They expect an education system that supports them, a health system that is available to them in their times of need, and retirement income that sees them living the sort of life that people in New Zealand so deserve. Instead, though, the Government takes that money off them, and does not utilise it properly. It does not identify that it is all New Zealanders who deserve to have a tax cut—not just some individuals. It seems to me that people deserve some understanding. It is about them and their working lives—working hard to have the means to get on and do what they determine to be best. Instead, we have a Labour Government that decides that it knows what is best for everyone, and just picks out individual people within the community, whether they be students or those with dependent children, whom it deems to be worthy of a tax cut.
I oppose, obviously, this piece of legislation. I find it absolutely astonishing that we are here under urgency, pushing through something that does not allow all New Zealanders to have a say in what exactly is happening. All New Zealanders deserve the right to say what happens to their money, but it seems that, instead, we have a Government that puts things through under the reign of urgency, and does not support everyone as it should.
A party vote was called for on the question,
That the question be now put.
Ayes 71
Noes 50
Motion agreed to.
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I just want briefly to thank all parties for their granting of leave for this part of the bill to be included. It deals with the equalisation of wine tax. Everyone, of course, realised that the Australian tax came as a bit of a shock to the New Zealand wine industry when it was announced in the Australian Budget some time ago. We have an agreement with the Australian Government, and we need the legislative means in New Zealand to implement that agreement, which is incorporated in this part. Again I thank members for their support on that matter.
Hon BILL ENGLISH (National—Clutha-Southland) Link to this
I thank the Minister for that acknowledgment, which meant that he did not have to talk about the bit in this part that really matters, which is in clause 5: the change in the thresholds and abatement regimes for the child tax credit. There is an interesting history to that. I am sure I cannot recall every twist and turn, but clause 5 should really be called the “Michael Cullen Back-down Clause”. As the Committee will remember, Dr Cullen announced the Working for Families package under a certain set of fiscal conditions, and then he was forced at a later time—not long after the Budget, actually, in 2005—to announce a much more generous Working for Families package. The fiscal conditions had not changed dramatically or even significantly, but the political conditions actually had.
This is how it went. Dr Cullen announced in his 2005 Budget what he believed to be clearly an important and a large-scale family tax package. It was greeted with derision—there is really no other word for it—around the country. I think the Dominion Post headlined it—
—sorry, it was not the original one; it was after the 2005 Budget—as “Is that it?”. I take the member’s correction; Working for Families was announced the year before that. But in 2005, when there was an expectation that many more people would benefit from it, no one did. Instead, they were given the “chewing gum” tax cut. So the provision in clause 5 of this bill came along after Dr Cullen had realised just how badly he had miscalculated in a political sense.
I would like Dr Cullen to explain, given that he had put so much emphasis on the surplus and the fiscal conditions, how he could suddenly afford a much more generous family tax package not long after the Budget that he could not afford at the time of the Budget. What had changed? I think if Dr Cullen explained that, we would see at least some of his fiscal argument for what it is. Dr Cullen has calculated that he can defend the surplus, which enables him to have enough expenditure to keep the Labour Party’s various constituencies happy. He will probably be reluctant to say that he misjudged the Budget, that the whole Labour caucus and the Prime Minister came down on him pretty hard, and that in the run-up to the election he was therefore forced to increase the thresholds for abatement, forced to increase the child tax credit, as he has done here, and, just as important, forced to drop the 30c abatement rate down to a 20c abatement rate.
The simple reason for that is that a large chunk of middle New Zealand income earners with children were going to be faced with very substantial marginal tax rates that gave them the feeling—and, I have to say, the reality—that it was not worth trying to get ahead. That, of course, is one of the fundamental problems with regard to the way Dr Cullen thinks about these issues. He is a Minister of Finance who believes incentives do not matter, and who believes that people do not really respond to them when it does not suit him. Well, of course, they do respond to incentives. But if the marginal tax rate is high and the net gain from an extra hour of work is minimal, people will not go out and do that work.
Dr Cullen may also like to explain to us just how he intends to maintain the complexity of the package Labour now has in place, of which this tax credit is part. When one looks at the accommodation supplement, the family tax system, and the fast-growing complexity of support for children in early childhood education, one sees it will be impossible for a Kiwi family to understand what benefit there is to it from doing an extra hour of work. There is now a plethora of different thresholds, different abatement rates, and accumulating marginal tax rates that are hard enough even for a bureaucrat to understand. A Ministry of Education bureaucrat will have real trouble understanding how the 20 hours’ free support—
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
Firstly, on the last point, could I tell the member that he is factually wrong. We have not introduced any new complexity in the system. The only structural change that has been introduced since 1999, which comes into force in April next year, is to replace the child tax credit introduced by National with the in-work payment, which is actually significantly simpler because, for the vast majority of families, there is no relationship to family size. Whereas under the child tax credit, of course, it was more whether families had three children, or two children, or one. Whether families have one, two, or three children makes no difference to the size of the in-work payments. It is a great deal simpler.
The rest of the structure is exactly the same. The abatement levels, the thresholds, and the levels of payment are all that have changed. The levels of payment have been substantially increased, the thresholds have been raised, and the abatement rate has been lowered. That does not make it more complex at all. It means that more people are entitled to targeted tax assistance; it does not make the system more complex in that regard.
The choice to pay all these payments universally, as the member will know, is vastly expensive. We could not possibly afford to pay a fully universal tax rebate for children at the level of the family support payments—that would run into some billions of dollars of additional expenditure.
I come to the issue of why the change. I indicated immediately after the 2004 Budget, when we announced the Working for Families package—in response to questions and in response to some issues raised, particularly by United Future—that I would, at the earliest opportunity, address the issue of abatement rates and seek to lower the 30 percent single level of abatement rate that was being introduced as part of the Working for Families package. Again, we simplified it from two thresholds, to one single abatement rate and a single threshold. We actually simplified the system, compared with the system that National had in place during the 1990s. The Pre-election Fiscal Update indicated a growth in revenue that had not been anticipated at Budget time. That was exactly the amount that was therefore translated into the two things in this legislation.
Firstly, lifting the threshold from $27,500 to $35,000 means that for a lot of families on lower incomes there is no abatement at all. Secondly, lowering the abatement rate from 30 percent to 20 percent is a significant reduction, for quite a large number of families, of the effective marginal tax rate—some 100,000 families having a lower effective marginal tax rate. Of course, 60,000 families have a higher marginal tax rate because they now qualify for family support targeted assistance, which they did not previously qualify for.
This bill helps a lot of New Zealand families with children, particularly low to middle income families. We make no apology for that, at all. Fiscally, the result has come out at almost the same as the Budget night fiscal forecast, in terms of the operating surplus and the fiscal stimulus over the next 2 to 3 years. Beyond that, of course, it does represent some further fiscal loosening by about year 4 of the forecast period.
It is a simplified package, compared with the package we inherited. There is a single abatement rate, a single threshold, and for most families there is no longer a two-tier system, with the in-work payment not related to size of family.
Finally, of course, in terms of childcare, the 20-hours-free policy will take a lot of people out of the targeted assistance. It will reduce, for a large number of families, the level of targeted assistance, which they were previously dependent upon. Also, as the member might be aware, we changed the accommodation supplement rules so that there is not a doubling-up of the abatement regimes around some aspects of that.
Does this work? Yes, it does. Look at the result. We have the highest labour-force participation rate in the developed world—not just the lowest unemployment rate, but the highest labour-force participation rate. Have people stopped working because of the 39c rate? No, they have not. Has the economy stopped growing? No, it has not. Have the participation rates gone up? Yes, they have. Has growth been good? Yes, it has. The National Party argument is just wrong on the facts. It is not what has happened. Did the National Party stop working after 1999 because the top tax rate went up? Yes, it did. Did it affect those members’ incomes? No, because they are on a salary. Did it affect the election outcome subsequently? Possibly, because they lost both the subsequent elections. They, in their own private little world, may have demonstrated their own theory, but the rest of New Zealand carried on working, carried on earning, carried on getting better off, and feels very good about the results.
Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this
Part 2, which implements the Government’s expanded Working for Families package, deserves real scrutiny. This expanded Working for Families package will bring 60,000 more New Zealand families into a policy that I would call, instead of Working for Families, “Working for Government”. Let me explain why I would call this package “Working for Government”.
Let us take the example of—once this package is implemented—people who are on the domestic purposes benefit but seeking to get off it through working more and more hours to earn more of their own keep and their families’ keep. Once a person on the domestic purposes benefit with three children earns a wage or salary to the tune of $10,000 a year, from there to $25,000 a year he or she pays tax of 92.2c in the dollar on every extra $1 he or she earns. I will repeat that: 92.2c in the dollar. I see the Minister of Finance shaking his head. I am quoting Inland Revenue Department figures. I have the department’s official tables right here. The tax rate for a single adult with children who is moving off the domestic purposes benefit—
Dr the Hon LOCKWOOD SMITH Link to this
These are the latest figures, provided by the Inland Revenue Department in the last couple of weeks. Once this package is fully implemented, for income earned from $10,000 to $25,000, a woman with three children who is trying to earn a bit more money to help her family pays Dr Cullen 92.2c out of every $1. Why does he hate women with children so much? Why does he destroy their hope? Where is the hope? I see that little fellow over there, Darren Hughes, laughing. Does he understand how many extra hours of work that is for a woman on the minimum wage? How many extra hours of work a week will it take before she gets off that 92.2c tax rate? It will take 30 hours of extra work a week, at $10 an hour.
I want to know how the Minister justifies that. It is the same for a family trying to move off the unemployment benefit. In fact, a woman who is trying to move off the domestic purposes benefit does not keep more than half what she earns until her salary is over $100,000 a year. Then, finally, if that woman has three children, her marginal tax rate comes down to 39c in the dollar. Until that point she pays 60c or 54c, except for a wee window at $30,000 of income when she pays a 22c marginal tax rate. Apart from that, her marginal tax rate, for income from $10,000 onwards, is 92.2 percent for a $15,000 range of income. For 30 hours extra work a week, at $10 an hour, she keeps, out of every extra dollar she earns, 7.8c.
Dr the Hon LOCKWOOD SMITH Link to this
I want Darren Hughes to tell this Committee why Labour thinks a woman with three children, two children, or one child should, when she is trying to earn more money for her family, give him and Dr Cullen 92.2c out of every extra dollar she earns, so that she keeps just 7.8c out of every dollar.
Dr the Hon LOCKWOOD SMITH Link to this
I want Darren Hughes to explain why, if that woman is independent of the benefit system—not on a benefit but on a similar income range—and she earns an extra dollar, she has to give Dr Cullen the lot. Someone who is independent of the benefit system, under this Working for Families package—and I say “Working for Government”—gives him the lot. In fact, 3,500 more families will come into this regime now, according to Dr Cullen’s officials. One thousand families are caught in it this year; once Working for Families is fully implemented, 4,600 families that are independent of the benefit system will find that, for every extra dollar they earn in the income range from $10,000 to $20,000, they give Dr Cullen the lot. Their marginal tax rate will be 101.2 percent. If they earn another dollar, they will give all of it to Dr Cullen.
These are our lowest-income families. I do not blame Dr Cullen for having established this regime—actually, it was established when he was in Government in the late-1980s—but it is time to do something about it, and this “Working for Government” package should relieve those low-income people of that burden.
R DOUG WOOLERTON (NZ First) Link to this
Dr Lockwood Smith goes on about this topic ad nauseam in the Finance and Expenditure Committee. If a householder had tuned into the radio while Dr Smith was giving his speech, he or she may well have wondered what was happening in the world, and may be seeking out Dr Cullen and wanting to put him in jail for stealing money from families. But, in fact, if any rational person chose to check the situation out, that person would find out that this has always been the case, and that, at the margins, these sorts of things always happen in a taxation system because there has to be a cut-off point. At that cut-off point, at the margin, there is always a problem of this nature. Dr Lockwood Smith knows that, but he does not tell people that. In saner moments, in the Finance and Expenditure Committee, he acknowledges that, and, furthermore, he acknowledges that he does not know what to do about it, either, as I am sure people would realise.
The fact of the matter is that New Zealand First supports this part of the bill. The next question is why we support it. We do so because it helps people at the lower end of the economic tier.
It does help people. Dr the Hon Lockwood Smith knows that and he chooses not to say that, which is not a good thing for him to do. There may be a technical issue, but the question is whether the measure helps lower-income people. Yes, it does. Would we prefer to see these things have some universality, or should they be targeted? Of course, everyone would love these things to have universality, but they cannot. They must be targeted, and that is where this problem comes in.
We have a clash of ideologies here. To argue ad infinitum that this measure hurts families, and that that is something that should not be gone into, is simply not sustainable, and I do not think the National Party should perpetuate that myth.
DAVID BENNETT (National—Hamilton East) Link to this
That was a very impressive speech from Lockwood Smith, our member from Rodney, who gave a very impressive outline. It was followed by a speech from a member of New Zealand First, who just came in behind, saying the Government spiel. It was quite interesting to see what New Zealand First was like during the campaign. It was quite a different story. Now that it is in Government it is backing Labour to the hilt. I say to Doug Woolerton that it is amazing how things have changed.
I think taxation is the key thing, because that was Dr Cullen’s biggest weakness during the election campaign. National was given a chance thanks to Dr Cullen’s Budget, which just did not deliver on taxation. Everybody in the country had built up expectations that there would be tax cuts, and they did not come. People out there wanted tax cuts.
This policy sends three signals to people. First, it sends the signal that for people on things like the unemployment benefit there is not much incentive to go to work. Secondly, the policy shows that if people are on the Working for Families package, there is no incentive to do overtime, or anything like that, because they will lose some of their hard-earned money. Thirdly, the policy means that people will be reluctant to take promotions and pay rises, and reluctant to get that education and do that training in order to get better incomes and jobs. Those are the wrong signals, but they are the signals that this Government intends to send to hard-working New Zealanders through this legislation.
So National members cannot support this bill. It sends the wrong signals and provides the wrong incentives to hard-working New Zealanders.
PAULA BENNETT (National) Link to this
I want to talk about the Working for Families part of the Taxation (Annual Rates and Urgent Measures) Bill, and I admit to having some real problems with it. My predominant concern is that it is Labour’s interpretation of what it means to be a family. How does the New Zealand public feel about the description of “working families” that Labour has termed under this bill?
The bill states that tax relief will be delivered to working families via enhancements to the Working for Families package. Labour has stated that it has targeted tax relief to 160,000 working families. But they can be called families only if they have dependent children of a certain age and if they fit certain criteria. And yes, those criteria are set by the Labour Government, which defines what “family” means and decides who gets to have the targeted tax relief. In order to receive this benefit, one needs to have dependent children. That is an insult to all working people without dependent children. What about young people who are trying to save in order to establish themselves financially before establishing a family? What about single people without children? What about those whose children have grown up and who are now saving for their retirement? All working New Zealanders deserve to have tax relief.
Let us look at an example of how discriminatory this bill is. The example is that of an average company in Auckland, where there is a small team of employees who do pretty much the same job and produce the same level of outputs and results for that company, but who have very different personal circumstances. One employee has two children aged 7 and 10, and both she and her husband are on average incomes. One employee has been working for 30 years and has three adult children. That couple has had the good times and the struggles, and is now at the stage of saving for retirement. The other employee is in a same-sex relationship, has never had children, and intends to never have children. Who is being discriminated against? This Government, which purports to ensure that there is equality and spouts on about equality for all, is blatantly discriminating against those who do not have dependent children. That is wrong.
This tax relief makes beneficiaries out of normal, everyday working New Zealanders who are trying to get ahead and just want to be given a fair deal. It blatantly ignores those without dependent children who are working equally hard and just want to get ahead. We received many letters during the campaign period from people who supported our across-the-board tax cuts. Those people stated they would sit next to someone in their working environment who would be doing the same job, with the same effort, and through the Working for Families targeted tax relief each person would receive extremely different levels of income in his or her pocket. That is what targeted relief does. It discriminates against those without dependent children. It is not fair and not equal. Universal tax cuts across the board are the only way to support the New Zealand public and incentivise people to get ahead.
This bitsy legislation, which caters only to a minority of New Zealanders, is simply not fair. The only way to deal with people fairly is by lowering taxes across the board. For example, a tax rate of 19 percent for people who earn between $38,000 and $50,000 would incentivise those people to work harder and move ahead, and would put more money into their pockets, so that they could choose how to spend it.
CRAIG FOSS (National—Tukituki) Link to this
Thank you, Mr Chairman, for earlier guidance—I note that the wine equalisation tax provisions that I mentioned are in Part 2, as opposed to Part 1.
First of all, as a member of the Finance and Expenditure Committee I thank the committee for its work and note the almost unanimous support its members gave to the wine equalisation tax provisions. They put New Zealand growers into pretty much the same position as Australian growers—essentially, they bring Australian tax law into New Zealand. I raise a caution there. I wonder whether, in fact, that is the thin edge of a wedge, because the Australianisation of all things New Zealand—regulation, law, and statute—is something that I think Parliament needs to address in the coming years.
One of the great things about the bill is that it transfers all risk, foreign exchange, cash flow, and interest rates, etc., to the Australian distributor or importer of New Zealand wine. Being the MP for one of New Zealand’s greatest wine-producing regions, I am very happy to support that area, and I am sure that the various ratepayers of Napier have done a good job. I also note that the change has come about after pressure from our wine industry. Politicians from the National Party forced a change. Well done, I say. Sadly, I note that New Zealand apples are still not allowed into Australia, even though we have made just as much noise on that issue.
I move to the Working for Families package. During the election campaign somebody said that the package was a form of tax relief. Well, goodness gracious, who does that tax relief come from? It comes from those who have imposed too much tax in the first instance. As I keep saying, the Government should not take any more than it needs. Essentially, the Working for Families package is a way of controlling the net wage of New Zealanders, regardless of what their gross income is. There is no clearer evidence of that than the effect of some of the rebates, which have a marginal tax rate of 102 percent. When a person earns $1, Dr Cullen receives $1.02. Why would one bother? Why would a person get out of bed to try to get ahead? I would like someone to tell me how that will affect aspirations to break out of the welfare cycle and dependency of so many families—particularly Māori families, whose income in the Hawke’s Bay is $3,000 per annum less than non-Māori households. How will a marginal tax rate of 102 percent help those families to break out?
So many members get up in this Chamber and rave on about breaking the dependency cycle, etc., etc. We should be brave, be staunch, and take a stand. Pita Sharples also noted that point the other day, but he still reluctantly gave his party’s support to this bill. That is not good enough. It is a trade-off that sacrifices the future, the incentives, and the aspirations of so many New Zealanders for the sake of small-time political gain. That is why so many politicians have such a bad name. Who else supports this bill? I note that Mr Woolerton—
—as part of the Government, said in response to my good colleague Lockwood Smith’s speech that this has always been the case. Well, yes. Is that a reason not to challenge it? Is that a reason not to address it? If you have always worn the same Y-fronts, then get into some briefs. You must challenge the status quo.
The CHAIRPERSON (H V Ross Robertson) Link to this
You must not bring the Chairperson into the debate.
I apologise. I move back to Working for Families. An earlier speaker, in relation to the Working for Families provisions, supported this bill because, that member said, it would help people at the lower end. Why not then give those people a million bucks? This bill will not help the people at the lower end of the spectrum. It will help their net income in the short term, but it will cap their future and lock them into exactly where they are right now. It sends a message to them not to bother to get out of bed—not to even try to break out of the cycle. I do not understand how so many members of this Parliament can give rhetoric about breaking out of the dependency cycle, etc., and can go forth and vote for this bill. I really do not understand how they can look themselves in the eye.
DARIEN FENTONCHRISTOPHER FINLAYSON (National) Link to this
There are two issues in Part 2. I will deal briefly with the proposals in relation to the wine industry, then turn my mind to the Working for Families package, which is, of course, another example of economic insanity. First of all, let us look at the Australian wine producer rebate. I basically endorse what my friend the member for Tukituki said. It is a scheme that is probably well overdue. New Zealand can be very proud of its wine industry. One can think back to the earliest days in, for example, Marlborough, now represented by Mr King, the MP for Kaikoura. From a very low base in 1973, the New Zealand wine industry has built up magnificently. The industry exports products to some of the finest destinations in the world, and New Zealand can be very proud of what has been done. People like Peter Hubscher, who did such a great job to build up Montana Wines, and George Fistonich, who built up Villa Maria, are great New Zealanders who deserve all the support they can get.
I endorse, however, the comments made by the member for Tukituki about the gradual integration of New Zealand into the Australian regulatory regime. I wonder whether that sort of thing should be done in an episodic way or whether we need to have a general national discussion about it. We have in this bill the integration of the New Zealand tax regime into the Australian tax regime, and I wonder whether it is a foretaste of what is to come with other statutes, such as, for example, the Securities Act and the Commerce Act. But that can wait for another debate. With that caveat, I endorse what the member for Tukituki said.
As for the Working for Families package, much has been said before, particularly by Ms Bennett. It is a system that destroys incentives and, worse than that, creates a super-class of beneficiaries that, in the worst possible way, creates middle-class welfare. I ask the Minister in the chair, the Hon Pete Hodgson, whether he is aware of any other country in the Western World where citizens can be earning over $100,000 yet still be on some form of welfare. It is simply an absurd way to organise an economic system. That, coupled with the student loan scheme and the holding of tax rates at the current level, is really very distortionary and very harmful to the New Zealand economy.
Ms Bennett raised a number of very important matters, and I hope the Minister will comment on them—not simply address them, as he does when purporting to answer questions, but actually get down to the nitty-gritty, because these are very important points. I would like him—[Interruption] I would like the member for Otaki for once in his life to be quiet. I would also like the Minister—
CHRISTOPHER FINLAYSON Link to this
I am not a sensitive member; I am just a member who has some very cogent and compelling points to make, and who wants the member for Otaki to do something in his life that he has probably never done before—that is, to learn something. If the member for Dunedin South were here, I would ask him to do something with one of his tennis balls.
The essential point that I want the Minister to address is the unfairness of this scheme for single people. What is his answer to that unfairness? I do not want some kind of half-baked, half-pie call that it is good for the country in general, but I ask what it does for single people. What does it do for couples who do not have a child—perhaps because they cannot? What does it do for couples with one child? This is discriminatory legislation; it is unfair to large sections of New Zealanders—and for other New Zealanders it is legislation that enslaves them in middle-class welfare. So let us try to have an answer that is not parroting platitudes.
Hon Damien O'ConnorCHRISTOPHER FINLAYSON Link to this
I do believe that the member for West Coast - Tasman is a sensible person from a sensible family, and I am sure that he believes the same thing. The legislation destroys incentives, and I would really like the Minister to address, in a fairly rational way, the points we have been raising, because they are very important points. Unless we get it right, we will inhibit growth in this country and cause fundamental damage to the New Zealand economy.
So I appeal to the Labour Government to take a good hard look at this, and try to get away from the point where it is Dr Cullen contra mundum because Dr Cullen knows best. The Government should answer the questions that Ms Bennett has asked, through the Chair, of the Minister, look at the essential unfairness that happens when a superclass of beneficiaries is created that covers some sections of the community but not others, and ask what it does for single people. The Government should answer that.
A party vote was called for on the question,
That the question be now put.
Ayes 71
Noes 50
Motion agreed to.
The question was put that the amendments set out on Supplementary Order Paper 7 in the name of the Hon Dr Michael Cullen to Part 2 be agreed to.
A party vote was called for on the question,
That the amendments be agreed to
Ayes 71
Noes 50
Amendments agreed to.
A party vote was called for on the question,
That Part 2 as amended be agreed to.
Ayes 71
Noes 50
Part 2 as amended agreed to.
Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this
I raise a point of order, Mr Chairperson. Could I seek your clarification as to where the Committee has got to, because, as I heard your call—and I may have heard it incorrectly—Supplementary Order Paper 7 was just passed as part of Part 2, but according to the explanatory note most of the changes proposed by that Supplementary Order Paper concern Part 3. So I wonder whether your question concerned those parts of it relating to Part 2, or whether it concerned the entire Supplementary Order Paper 7. Forgive me if I misheard you, but much of that Supplementary Order Paper appears, according to the paper itself, to relate to Part 3.
The CHAIRPERSON (H V Ross Robertson) Link to this
As I understand it, Dr Smith, the Minister’s amendments on the Supplementary Order Paper apply to clause 4B of Part 2. In terms of Part 3, the Supplementary Order Paper applies to clause 12.
Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this
I raise a point of order, Mr Chairperson. My point of order was to ask whether we had passed all of Supplementary Order Paper 7. I may have misheard; I thought it was the whole of Supplementary Order Paper 7 that we voted on just then. Most of the changes proposed by that Supplementary Order Paper concern Part 3, which we have not yet debated.
The CHAIRPERSON (H V Ross Robertson) Link to this
My understanding, Dr Smith, is that we have actually passed only those amendments related to Part 2. Because Part 2 was the main part being debated, the amendments voted on related to Part 2.
Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this
I raise a point of order, Mr Chairperson. I thought I did hear your question, but I do not recollect hearing you say those parts of Supplementary Order Paper 7 relating to Part 2. But I may have misheard.
The CHAIRPERSON (H V Ross Robertson) Link to this
No, you did not mishear. That is standard practice as to how it is actually done.
Hon BILL ENGLISH (National—Clutha-Southland) Link to this
I raise a point of order, Mr Chairperson. Does that mean we will pass another question when we have debated Part 3, in order to pass the rest of those amendments?
Hon BILL ENGLISH (National—Clutha-Southland) Link to this
This part of the bill relates to student loans. As Dr Cullen said to the vice-chancellors when he met them last week, if it had not been for this promise, they would have had a National Minister of Education sitting in front of them. He may well be right, but of course the electoral success of the promise of interest-free student loans does not guarantee that it is sensible policy.
In particular, one issue we have struggled with is to understand the costings. The Minister in the chair, Pete Hodgson, being a key Cabinet Minister, may be able to explain them to us. Can he explain what happened after the initial Treasury costing, which was that the effect on the operating balance would be $302 million in 2008-09, with a rising profile after that? How does he reconcile that with the most recent costing published by Treasury, which states that it will now cost $202 million with a flat profile over time?
I am looking forward to the Minister’s explanation of that difference, because, as he will recall, the costing of this policy was controversial. It was controversial because, in the first place, the Government would not release it, and, in the second place, estimates made by private sector bankers were very large and the Government disputed them. Then, in the last week of the election, the Ombudsman forced the Government to release the costings—the $302 million I have referred to—and, since the election, there has been a greatly reduced costing of $202 million. I suspect that part of the difference is that the Government will have in the Pre-election Fiscal and Economic Update a large, one-off write-off to the extent of a couple of billion dollars, because the Government has to look at the fair value of the loans with interest, as they are on the books, and compare that value with the fair value of the loans without interest. The Government will, no doubt, take that hit upfront. I would be interested if the Minister could enlighten us as to whether that will be the case.
That move is, of course, politically very attractive, because the Government has now managed to make an expensive policy with very bad incentives look like a cheap policy with incentives that do not matter. That is hidden by the complexity of the accounting around how the Government handles a diminution in the valuation of the loan portfolio at the same time as it accounts for interest that it would not have received, anyway.
I shall use an example of some of the effects that just cannot be accounted for in the costings. The parents of a student going off to university, under the existing regime with interest, would have been looking to support that student at university. That support does not appear yet, because the student has not gone to university yet. But because the loans now are interest-free, what will happen is parents will tell their children who intend to study that they will not support them, and that they must borrow the money instead. That is probably the effect that will have the single biggest impact on the cost of this policy. The Government denies any of those incentive effects, but what sense does it make to parents to fund their children on overdraft interest rates when those children can fund themselves on a zero interest rate? It makes no sense.
The Government defends the policy by saying that students will not be so smart as to borrow the money then put it on deposit somewhere, because they will need it while they study. Actually, many students will, but probably the larger effect will be the substitution effect—that is, substituting interest-free student loans for what would otherwise be private support. I would like the Minister to explain why the Government thinks none of that matters, because, of course, it does.
So those are some questions for the Minister. I want him to explain the difference in the two costings that Treasury gave us, because there is a difference of 35 percent—$300 million cut down to $200 million—and to explain just how the Government will account for the impact of the policy on the operating balance.
KATHERINE RICH (National) Link to this
As I follow on from my learned colleague Bill English, I think he raised a very important point. It seems that Labour does not understand, or does not want to believe, that some New Zealanders will change their behaviour as a result of this policy. Labour seems to believe that students and their parents will not look at the changes in this scheme, and that students will not take out more money now that the loans are to become totally interest-free.
I say to the Minister in the chair, the Hon Pete Hodgson, that parents with half a brain will now tell their children who are approaching university age to take out the loans they have available to them to the maximum, and that if they are able to put whatever funding they have into an interest-bearing account, they will find themselves better off. Already I have spoken to some students who have worked out that if they do that and put their money into either a bank account or some kind of investment, be it their own student flat or another kind of investment that will earn them an income, they will be better off at the end of their degrees and in the years to come. I think it is quite naive to suggest that Kiwis will not change their behaviour. Of course they will. Where money is free and there is no cost associated with taking out a loan, anybody who has other financial loans will maximise the amount they have interest-free and use that to offset other loans that they have elsewhere, or will put money into an account where they can earn income. That is just common sense. It is less than economics 101; kids learn that sort of thing in maths at secondary school.
One of the things that does concern me, though, is the sort of incentive system that this policy continues to put in place in this country. It tells those parents who want to assist their own kids that they will be worse off and that there is now a disincentive to do that. As Bill English has pointed out, we will now see some of that private support crowded out by the Government’s becoming involved and saying that it knows best and that this system is being put in place to support students.
It was interesting to hear Dr Cullen talk about tax bribes. Well, what is this policy? It was the greatest bribe of the last election. Although Labour pretended that the costings had been done, it did not have a blind clue as to what the actual cost of this policy would be. The Prime Minister stood in the Chamber and said that Treasury had not done a costing because it did not cost Labour Party policy. We found out that that was not correct; Treasury had done the maths on it, and the maths did not look great. If Labour was not trying to be deceitful, why did it take the Ombudsman’s decision that it was in the public interest for the information to be released, and that it had to be released prior to the election, before it was released and we could see the workings had been done? Once those workings were released, it became quite clear that the political rhetoric leading up to the election and the workings on the policy that had been done showed quite different stories.
The interest-free student loan policy was quite clearly one of the biggest election bribes. In this case—sadly—it worked for Labour, but I think what has been done is a great disservice for this country. Not only will we crowd out private family support for students as they undertake their tertiary study, but we will now move to a situation whereby we actually force money on to young people and make them more indebted at the very beginning of their lives. One of the things that strikes me when I talk to students who have left university and gone on to work is that they did not understand what they were letting themselves in for when they cranked up their loans to buy a myriad of things. Money, particularly when it is interest-free, is easy to take on, and it is not until some years later that students fully understand that ultimately the money does have to be paid back. We will see a huge increase in the number of loans taken out by students and a huge decrease in repayments.
R DOUG WOOLERTON (NZ First) Link to this
On the previous part, the member Katherine Rich was accusing me of going back 30 years into the dim past of the National Party and all the rest of it—years that National Party members would sooner forget, I might tell people—but I am going to do it again. I remember saying to one Dr the Hon Lockwood Smith, when he brought in the student loan scheme, that it would be bad for the young people of New Zealand because it would get them into the business of borrowing money for education, and we believed, and all good, sensible people of New Zealand believed, they should work for it, and the parts they did not work for should be put up by the State. Some people still hold to that policy. New Zealand First believes there should be universality when it comes to living allowances. We have moved as far as that. But we accept that the market should reign when it comes to what courses students take, and we accept that that will largely be judged by the person on the fact that they will earn more income when they leave university.
However, we had a situation at the last election, and I agree with Dr Cullen: I believe that this policy won the Labour Party the election. But National members do not say too much about the fact that the only thing that happened was they were trumped on this. They said: “We are going to lower the tax on student loans, and we are wonderful people.” They said nothing about how they could afford it on top of tax cuts. They said nothing about any of that. On top of tax cuts for everybody, they promised a reduction in the interest on student loans.
Mr Damien O’Connor is close to the action and he tells me they were not going to do it. I suspect he is probably right. I was taking the National Party at face value, which I probably should learn not to do. I am naive and innocent. Even as I approach my more interesting years, I am still naive.
The Labour Party came in and said there would be no interest on student loans, and it won the election. Now we have a situation where National is saying that the world is going to be turned on its head because students are actually going to do what the Government said they should do and borrow for their education. Duh! I think Labour probably understands that.
But it is a matter of wanting better education for our young people—and we all in this Chamber want that, I hope. We want a better-educated workforce and we want New Zealand to be the most enlightened, best-educated country in the world. New Zealand First is supporting the bill, which incorporates this change to the regime of taxing students, because we uphold the principle of wanting better education for everybody in this country. We would do it in a slightly different way. We would do it in a different way from what the National Party proposed, but we would not be dogs in the manger and say that it should not happen, because we want our young people to succeed. We want a country where we can hold our heads up high and say: “We are the best in the world.” I remember my colleague Peter Brown, who is sitting beside me at this point, saying to me that he came to this country in the 1960s because he believed it to be an enlightened country. He believed that his children could be brought up better here, have a better future, and all of those things. He supports this bill because it is fulfilling those things that he came to this country for, and New Zealand First is proud to support him in that.
Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this
On listening this afternoon to Mr Woolerton, the former president of New Zealand First, one realises how interwoven New Zealand First has become in the Clark-Peters Labour Government. New Zealand First is now totally in the pocket of Labour, and I guess that is kind of sad for New Zealand, in some ways. But Mr Woolerton was quite right. He said one thing I do agree with: I did design the student loan scheme, as Minister of Education, in 1991. It achieved a great deal for New Zealand, by taking it from the bottom of the OECD, in terms of tertiary participation, to the top. In just 6 years we went from the bottom to the top. That was a very carefully designed student loan scheme, with appropriate write-off provisions to make sure that no loan could escalate.
We are now seeing that carefully designed student loan scheme being destroyed in an election promise that, I have to say, was the most breathtaking I have seen in all my time in this place. It was breathtaking for several reasons. One is that when Labour made that election bribe, it had no idea of how much it would cost. It had no idea of the impact on the Crown balance sheet.
Dr the Hon LOCKWOOD SMITH Link to this
Darren Hughes says that that is wrong. On 23 November I asked the officials at the select committee for the full costs to the balance sheet of the policies in this bill. Their answer was that they did not know. That was from Treasury and Inland Revenue Department officials on 23 November, well after the election. I asked the officials the full costs to the balance sheet of the polices in this bill. Their answer was that they did not know that.
Dr the Hon LOCKWOOD SMITH Link to this
They told us they did not know, so I say to Mr Hughes he should not mislead this Committee by claiming that Labour knew the cost of this policy prior to the election.
Darren Hughes should remember that Helen Clark, the Prime Minister, told Parliament that Treasury had not costed the policy. She sat in the seat in front of the junior Government whip and told this Parliament a lie.
The CHAIRPERSON (H V Ross Robertson) Link to this
The member has been in Parliament for a long time. He knows that he cannot use the word he used. I ask him to withdraw and apologise.
Dr the Hon LOCKWOOD SMITH Link to this
I withdraw and apologise. I am not sure how to describe what the Prime Minister said. She told this Parliament that Treasury had not costed it, point-blank. That proved not to be correct, because we revealed only a couple of weeks later that Treasury had costed it. Mind you, when we consider she is someone who signed paintings that she did not paint, someone who knifed a former police commissioner in the back to the media and denied it, and someone who claimed she had no idea how fast she was being driven across half of the South Island, I guess we should not be surprised at that. The integrity level of the leader of the Labour Party, New Zealand’s Prime Minister, is such that she would tell this Parliament that Treasury had not costed Part 3, when Treasury had costed it and there was no way Helen Clark could not have known that. She must have known that when she stood up from her seat, in front of Darren Hughes, and told this Parliament point-blank that Treasury had not costed it, when Treasury had. We should not be surprised that a Labour Party led by someone with as little integrity as Helen Clark has members like David Benson-Pope, who has no integrity whatsoever.
I want to come back to Part 3, because this part was breathtaking for these reasons. Not only does it involve a massive hit to the Crown balance sheet but it is also a massive con job. Students who voted for Labour as a consequence of this policy thought they would get cash in their hands. In fact, students will see nothing out of this provision until, through the taxation system, they have paid back their entire student loan, and then through the taxation system they will not have to pay any interest. Students were conned. They did not realise that. When I have talked to students since the election, they have asked me what I meant when I explained that. They were conned. There has been a massive hit to the Crown balance sheet, and Labour has conned thousands of students.
DARREN HUGHES (Labour—Otaki) Link to this
Unless one is a student and a scholar of ancient political history, one would not know that that was Dr the Hon Lockwood Smith. From the way he was describing Part 3, he had never been in a Government before. He used words like “breathtaking promise”, a “con job”, and said that people had to remember what had been promised.
I wondered whether that could be the same man who went up and down New Zealand to different university campuses, signing pledges promising that if student fees were not abolished, he would resign. “Honest Lockwood Smith” went up and down the country, a decade and a half ago, saying that. We have the documentation, which has been tabled in the Parliament of New Zealand, showing that Lockwood Smith went around the place—
Dr the Hon Lockwood Smith Link to this
I raise a point of order, Mr Chairperson. I am not allowed to say that member is lying. I have, through previous points of order and a personal explanation, explained to people like Darren Hughes, who do not know the facts and the truth, that the only pledges I signed promised to abolish Labour’s Government-imposed $1,250 student fee. I never ever signed a pledge that there would be no fees.
The CHAIRPERSON (H V Ross Robertson) Link to this
That is a debating point and the member can take a call.
Dr the Hon Lockwood Smith Link to this
I raise a point of order, Mr Chairperson. When a member makes a personal explanation, as I have in the past about that issue, it is no longer a debating point. The Committee must take my word for it, and I can prove it because I have copies of those pledges. It is not a debating point. I would appreciate your correcting that ruling.
The CHAIRPERSON (H V Ross Robertson) Link to this
The member has taken exception under Standing Order 116, “Personal reflections”. The member will withdraw and apologise.
I am happy to withdraw. What we now know is that Lockwood Smith went around the country talking to angry crowds of students, saying: “I will abolish Labour’s tertiary fee of $1,250. That’s the good news; the bad news is that I’ve got a $3,000 Tory fee on the way. I’m ‘Honest Lockwood Smith’. I’ll resign unless I can make sure your fees are more than $1,200.” What a farce!
The last National Party member who should have been allowed on his feet in this debate this afternoon is a relic from the 1990s like Lockwood Smith. Most Ministers of Education in New Zealand visit campuses; that is part of the job. That man, when he arrives on a campus, has police protection. When he leaves, he does not leave by the door—oh no, he is far too important. He leaves by the bathroom window! So loved were his policies, so respected was his integrity, so visionary was his approach to the student loan scheme that he left via a toilet window. So we will not hear any more from Lockwood Smith. I want the National Party to continue to—
Dr the Hon Lockwood Smith Link to this
I raise a point of order, Mr Chairperson. That junior Labour member should know that a member cannot tell lies to this Parliament. What he is telling the Parliament are simply lies. I have never ever left a university campus by the bathroom window, or any other window.
The CHAIRPERSON (H V Ross Robertson) Link to this
Can I just point the member—[ Interruption] Members know that when a point of order is on the floor there is to be no sound whatsoever. That is disorderly conduct. I refer the member to Speaker’s ruling 127/4: “As long as the member who made a personal statement remains a member of the House, the member’s personal explanation may not be debated or otherwise challenged, even where it was given in a previous Parliament.”—Mr Speaker Hunt, 2000.
I raise a point of order, Mr Chairperson. Does that mean that the member has made a personal explanation about what type of window he did climb out when he was being harassed?
I am seeking clarification. Footage on the television news showed that former Minister of Education having to climb out a window away from students, whom he could not explain his policies to. [ Interruption]
This policy is a fantastic policy. Part 3 is good Labour policy, and I am delighted the National Party keeps opposing it. I was very interested to hear Katherine Rich confess that she thought the Labour Party might have clinched the election on the basis of that policy. The bitterness in her voice was clear, because, as one of the National Party’s centrists, she knows that this is a good policy. The problem for National members is that they are obsessed about the transitional provisions, obsessed about what might happen between now and April. The point they keep missing is that all that this policy says is that students have to pay back what they borrow from the Crown. Rather than paying that back with interest, we are asking students simply to pay back their student loans—the amount they borrowed.
But National members are saying that students will refuse to pay it back. What they do not know, because so few of them had student loans, is that people repay the loan via the Inland Revenue Department system, through PAYE, whereby 10 percent of every dollar earned over a certain amount is deducted from source. There is no choice in this; it is part of one’s taxation requirements. Therefore, when people apply for things like a mortgage, hire purchase, or to buy a new car and, they have to list all their debts, they have to include their student loan. So that has an impact on their ability to borrow in the market place, which, supposedly, is an area the National Party knows a lot about. So it is in a student’s interest to retire that debt as quickly as possible, and the fastest way to do that is to pay back only the amount borrowed.
This is good, sensible Labour policy and I hope National keeps opposing it. National is going down the drain.
CHRISTOPHER FINLAYSON (National) Link to this
What a juvenile contribution from the member for Otaki! Mind you, when he reaches puberty he will be devastating!
I want to concentrate, rather than on personalities, on the issues. Part 3 introduces a scheme that is unworkable and unprincipled. It is very much unprincipled. It was not carefully thought out, as Mr English said, nor was it reached as a result of policy discussion within the Labour Party, nor was it costed by reputable economists. It was a rushed response to poll results indicating the election was slipping away from the Labour Party. It was a hastily devised bribe, whose principal architect, the member for Hutt South, may have some skills when it comes to 5-minute horizons but cannot think long term. And one does not have to be someone who thinks only medium term to know that before the 3-year period is out this bill will be back before the House for further amendments. It was the worst sort of policy, devised in the heat of the campaign, and Treasury would say “amen” to that.
The second point—and I would really like the Minister in the chair, the member for Dunedin North, to wake from his slumber and answer this hypothetical example—is that this policy discriminates against tradespeople. What about the tradesman who wants to set up business as, say, a plumber or an electrician? He or she has to go to the bank to obtain appropriate loan finance, and has to pay that loan back with interest. That is, quite frankly, as it should be. Any person setting out to build a business who takes out a loan, in the expectation that over 20 or 30 years he or she is going to make a lot of money, should pay back that loan with interest at commercial terms. Compare that with a student—say, one in the position of the member for Otaki—who leaves secondary school at the age of 17 or 18, and, not knowing what he or she wants to do, goes to university to study some useless subject like peace studies, the sort of subject that equips one well for a career in the Labour Party; that person can obtain an interest-free loan, study that politically correct rubbish—which my friend the member for North Shore is going to dispose of—then drift off into the workforce. Of the two hypotheticals I have mentioned, who actually contributes to the New Zealand economy? Obviously it is the electrician or the plumber. These are the people who grow the economy, these are the people who provide useful services, but there is nothing for them in this scheme.
Quite apart from discriminating against tradespeople setting out to build their businesses, this legislation also discriminates against hard-working families who send their children to universities. The parents are the ones who should be obtaining tax relief. They are the ones who have nurtured their children, raised them, and got them to the point where they can go to university and, provided that they study the right subjects, get ahead.
The third point I wish to make is that the legislation is unreal. The Deputy Prime Minister said that one aim of the policy was to encourage skilled New Zealanders to invest their skills in the New Zealand economy, but it will not achieve that end. New Zealanders will invariably travel overseas for their OE, and very little can be done about that, and that has been the case for years. One hopes that young people will come back to New Zealand to invest in their country, but that is no reason to give them interest-free loans. They will come back if they know they can get ahead in this country, and that means our ensuring that, for example, taxes are not as punitive as they are now.
I remember well the legal services market, having practised in the law for 25 years; the pattern was that lawyers would go overseas, spend a few years in a large law firm, and come back to New Zealand. The reality is that because of the state of the New Zealand economy, because of punitive taxation, they now go overseas at the commencement of their career, to Australia more likely than not, or to England, and they never come home. Our not getting the tax rates right will keep New Zealand students overseas. One need mention only the legal services market, but it applies to medical students, accountants, engineers, and other graduates of our universities. So students will not necessarily be attracted by this scheme to stay in New Zealand. They will be attracted back to New Zealand only if—[Interruption] I do wish the member for Otaki would listen. They will come back to New Zealand only if they can contribute to an economy that has low taxes. So my advice to the member for Otaki is to vote against this part, because New Zealanders will not come back if they are going to be saddled with this insane scheme.
MOANA MACKEY (Labour) Link to this
I am very happy to rise to support Part 3, which deals with the amendments to the student loan scheme. Are not all the arguments we have heard very familiar? As I sit here listening to National Party members rise to their feet and say that this measure will mean doom and gloom for the country, that young people will be ripping off Treasury to the tune of billions and billions of dollars, and that it will send us right down the gurgler, I am thinking: where have I heard all this before? I heard all this before when in 1999 Labour said it would abolish interest on student loans while students were studying. We heard all this before, and did students act like the National Party members would? Did parents tell their children to go out and rort the scheme, like all the National Party members would tell their children? No they did not. It is nice to know that the National members have so little faith in the future of this country that they think that whenever students see an opportunity to take out money to pay for their education, their instant thoughts will be about how they can rort this scheme.
I do not think that National members know anything about the incentives of paying back a student loan. I wonder how many in the National Party currently have a student loan or have had a loan, of say $20,000 or $25,000, that they have had to pay back. I wonder how many of them have found—as I did, and as my colleague Darren Hughes does, as we both still have student loans, although my student loan will be gone by the time this policy comes into place—that the biggest disincentive to repaying a student loan was the interest charged on it. When I left university, my student loan was much, much higher than the amount I had borrowed, because of the interest while I was studying. Dr Smith was very, very proud of that policy—so proud that he did not turn up to our university to talk to students about it when he was invited to.
Exactly. This measure in this bill provides a real incentive, because the biggest incentive to getting rid of one’s student loan and to be able to plan for the future, buy a home, and have a family is to see a light at the end of the tunnel for a debt that one has carried on one’s shoulders for a long time.
Students do not have any choice about paying their loans back. It is not as though they can suddenly finish university, get a job, and think: “Well, I’m not being charged any interest, so I’m not going to pay anything back.” They are compulsorily paying back at the rate of 10c in every dollar they earn. So since I started working in 1996, when I left university, I have been paying 10c more in every dollar than every other member in this House, and I can tell members that it is a huge, huge incentive to pay off my student loan and see that go.
I do not think we will see the incredible rort that the National Party members think we will see. Of course, they will go out there and try to convince students to rort it. They will be on the campuses with their National Party and their “Young Nationals—Blumsky’s Team” T-shirts, and saying: “Come on, rort it, rort it, rort it.” But I do not think students will do that, because when I went around campuses during the campaign, students were actually really grateful for this policy. They were sick of politicians like Dr the Hon Lockwood Smith, who went around signing pledges that he was going to get rid of a $1,200 tertiary tuition fee, then got into Government and said: “Well, I did, but I replaced it with a $3,000 one.” Students are sick of those kinds of politicians and sick of being the political football that they have been for a very long time.
We need to do something bold with student debt. Student debt is a huge problem. We all know that. We can all pretend that it is not a problem. We can all pretend that grandparents and parents are not worried or concerned about their children’s student debt. Parents will still be worried when their children graduate from university with a $20,000 student loan, even though it is interest-free. They will still be concerned about the fact that their son or their daughter owes $20,000 and will have to put on hold a lot of decisions they would otherwise have been able to make a lot more easily if they did not have a debt to repay first.
We would not even be having this huge debate if the National Party were not incredibly worried about this policy. National members know how much this appeals to students, parents, and grandparents who have seen the real effects, and to families who have not been able to afford to put their kids through university. They have seen the effects—the way it drives people overseas, the way they have not made the repayments while they are over there, and the fact that they have decided not to come back. Members should go overseas and ask anybody over there with a student loan: “What is the No. 1 issue you consider when you consider returning to New Zealand?”.
Come on! Oh, please! The No. 1 issue is student loans every single time. This is why National members are still sitting on the Opposition benches—they have never understood what matters to the young people of this country—and they will continue to stay there as long as they continue to be as arrogant as they have been about this policy.
MARK BLUMSKY (National) Link to this
It is wonderful, is it not, that so many Kiwis start up small businesses, and luckily stay in them, because they become the lifeblood of New Zealand. People start on the road to building their futures as a part of the university of life—the “university of small business’’, trying to make some money. A guy, for example, goes to a bank and says he is about to start a small business, and he asks for a loan. The bank manager says: “Of course you can have a loan. I need your house. I’d like your house as collateral for the loan.” Well, ouch, that hurts, but nevertheless, the man says: “OK, that’s fine. But if I’m giving you my house, Mr Bank Manager, can I please have that loan interest-free?”. The bank manager says: “You’ve got to be joking! Do you think I’m stupid? That is totally irresponsible because that is not the way the big world operates. There is no such thing as free money, Mr Small-businessman, because you’ll go broke.”
So let us look at Part 3 of this bill. What signals are we sending these students about the way the big, wide world operates? Dr Cullen wants to give students in New Zealand free money. There is no such thing as free money. Students need to learn that they do not get it easy in the big, wide world. They will not get things like interest-free loans. Dr Cullen is misguided on this one. We can help these students by letting them learn the real lessons of life. Dr Cullen should tell students that if they want to pay their loans off, they should go and get a part-time job, and he should change the tax levels on the money they will earn in that part-time job. He should make it so that they are not paying secondary tax of 33 percent. Let us have a rate of 19 percent, as John Key indicated quite recently.
Why, I ask the Minister, do we not teach students that there is no such thing as free money and that there is in fact a big upside to life if they do in fact pull their finger, if they have aspiration and ambition? It is not fair, I say to Dr Cullen, that a very large section of our community, a group called small-business owners, is getting whacked around the head by his tax burden, by his compliance costs, and by high interest charges when it is those people, those small-business owners, who pay him the very high taxes he will then give away to another group, called students, who will receive a very unfair privilege from his very big-spending Government, in the form of an interest-free loan.
I want to know what the Minister will say to those small-business owners who go to the “university of small business”, trying to make some money. What will he say about Part 3 when he goes to those small businesses and says: “I’ve given free money to students but you will have to continue to pay those very, very high taxes.”? Those small businesses are the lifeblood of New Zealand but Dr Cullen will cripple them in order to give students free money.
ERIC ROY (National—Invercargill) Link to this
For the benefit of those who may be just now tuning in to this debate on their radios, I point out that we are debating the Taxation (Annual Rates and Urgent Measures) Bill. We are now on Part 3, which relates to the amendments to the student loan scheme to give interest-free loans to students.
I am hugely concerned about the provisions of this part. I have had those concerns increased by listening to Moana Mackey say that no one is massaging this change to his or her own advantage. Let me just say to her that I have a number of examples, but I have enough time to give only one. When this proposal came out the principal of a high school, who I do not think would have ever voted National in his life, said that as soon as the interest rates came off while students were studying, he gave one very clear instruction to his kids. He had three kids in tertiary education, and he said they should draw down every single dollar that they could draw down. He said that his oldest daughter, who was finishing a double degree, after 5 years had a student debt of $71,000, but she had an investment account with $41,000 in it. So for the Government to say that no one is making use of interest-free money shows its limitations.
If Government members wish to cast aspersions upon the intellect or thought processes of National members, then perhaps it is time for them to reflect entirely upon whether they have understood the complexities of this situation. For example, Dr Bollard is hugely concerned about New Zealanders borrowing money, so what does he do? He has put up interest rates nine times in a row, as a disincentive to borrowing. But suddenly we have interest rates being lifted off student loans. What will happen? In one part of the economy interest rates are going up and up as a disincentive to borrowing, but in another part students will have to pay absolutely no interest. What will they do? It is absolutely clear that this measure will increase borrowing. Without a doubt, that reaction will follow. I suggest that any students who do not participate in that neither deserve, nor are they likely to get, their qualifications, because of their limitations in understanding the first principle of borrowing. There is absolutely no incentive for any student whatsoever to get involved in repaying his or her loan any faster than the prescription for paying the minimal amount extracted through tax payments.
I have some understanding of the implications of tertiary education costs. At one stage my wife and I had four kids all drawing down on student loans in the same year. Our kids have now pretty much paid back all of their student loans because they got in, rolled up their sleeves, and did that. The repercussions from doing that, now that they are in their 20s, are that they own their own homes. They know about borrowing and the responsibilities of paying back loans. It is a gross naivety on the part of the Government to presume that the impact of this measure will not increase student debt. It will have an impact on the responsibility for clearing that debt, because without interest no disincentive whatsoever is applied against borrowing.
I am appalled that we are doing this to an economy that needs to instil responsibility and create an environment where there is some equity between students and the rest of the community. Mr Bollard, in order to create a disincentive against borrowing, is continuing to increase interest rates. What conclusion do we draw from that? Does the Government not accept or believe that Mr Bollard’s actions are the appropriate ones to stop us from borrowing? Does it not accept that that reaction has come from us over-borrowing as a country, and will that not happen to students? Clearly, it will. The disciplines of having a loan, understanding the responsibilities of a loan—
Simon Power[... plus a further 37 contributions not shown here]